Rand below R18/$ after interest rate hike

The rand broke below R18 to the dollar on Thursday, firming to a sevenweek best as the Reserve Bank monetary policy committee (MPC) raised the repo rate more than expected.

The Bank raised the rate by 50 basis points (bps), versus the market expectation for 25bps, bringing the central bank’s benchmark repo rate to 7.75%, the highest since 2009.

The decision was not unanimous. Three MPC members preferred the announced increase and two voted to raise by 25bps.

“The bigger-than-expected hike is on the back of persistent inflation and the continued capital outflows we have experienced in 2023,” said TreasuryONE head of market risk Wichard Cilliers.

“This hike is a commitment by the SARB [SA Reserve Bank] to try and rein in inflation, and this will also provide some support for the rand,” said Cilliers. “This could well be the last hike in the cycle, but it will all depend on what the US Federal Reserve does at its next meeting.”

The rand gained more than 1.7% in intraday trade, the biggest one-day gain since January, touching R17.7488/$. At 5.50pm, the rand had strengthened 1.18% to R17.8763/$, 0.72% to R19.4717/€ and 0.61% to R22.1122/£. The euro was 0.52% firmer at $1.0896.

Globally, sentiment continued to improve as investors bet that the worst of the global banking sector turmoil has passed.

“Stock markets are in the green once more on Thursday with confidence slowly returning as we near the end of the second week without serious drama,” said Oanda senior market analyst Craig Erlam. “Of course, I’m not including the bank sell-off we saw late last week, considering there was no obvious trigger, and fear and panic played a huge role in it. That was more a symptom of what preceded it than evidence of further vulnerabilities in the banking sector.

“That isn’t to say that other vulnerabilities and casualties won’t emerge, but investors will be feeling a little more comfortable with the situation as a result of this period of relative calm,” said Erlam.

The JSE all share firmed 0.29% to 76,704 points, having gained as much as 0.6% in intraday trade, while the top 40 was up 0.32%. Industrial metals added 1.69%, resources 1.29%, precious metals 0.98% and food producers 1.26%.

At 6.15pm, the Dow Jones industrial average was 0.53% firmer at 32,749 points. In Europe, the FTSE 100 added 0.74%, France’s CAC 40 1.06% and Germany’s DAX 1.26%.